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The Impact of Skills on Relative Productivity Performance at National Level: Exploring Channels of Influence
Abstract
Given the widespread emphasis on the importance o f increasing workforce skills in order to enhance productivity performance, it is perhaps surprising that the evidence on the contribution of human capital to inter-country differences in productivity performance is still mixed. Yet this is certainly the case. This paper argues that two main reasons why some studies fail to find a strong role for skills in explaining relative productivity performance at national level are difficulties in measuring skills adequately and failure to take account of the mechanisms or channels of influence by which skills may exert indirect effects on productivity. Examples of such channels of influence include the complementarities of skills with other production inputs and the contributions made by skilled workers to knowledge generation and exchange and to innovation processes. However, the paper cautions that, in any single country, increases in measured skills may indeed have no effect on relative productivity performance unless those skills are well matched to employer requirements and are effectively utilised within firms and other organisations.
... The public sector can play an important role in the skills development process by incentivizing parents and employers in early level of schooling (Cunningham and Villasenor, 2016). Contrary to this, Mason (2008) pointed in his study that enhancing workforce skills may not enhance the relative productivity of a worker. Expansions of educational institutions have accelerated the growth in the supply of qualified workers to outstrip the growth in demand resulting in a substantial decline in the wage premium to white collar jobs. ...
... Workers employed in agricultural, forestry, fishery, craft and related trade activities, plant & machine operators and assemblers do not depend on computers and are mostly manual in nature and continue to work in the same line and thereby experience less increment in their mean wage structure in spite of high comparative wage-earning without any skill than workers in other occupations. This finding is consistent with the research study of Mason (2008) pointing on the fact that enhancing workforce skills may not enhance the relative productivity performance of a worker as the expansion of educational institutions have accelerated the growth in the supply of qualified workers to outstrip the growth in demand resulting in a substantial decline in the wage premium to white-collar jobs. The similar research undertaken by Shi et al. (2018), for analysis of recruitment process in the Germanspeaking part of Switzerland, brought out the fact that it is the skill acquired vide academic standard matters to provide employment at the entry-level, not the personal characteristics of employment aspirant. ...
The focus of paper is on explaining variations in wage earning potential of regular wage earners caused by varying skill levels. Further, the paper attempts to analyse the conditional causal effect for a broad range of occupational groups to infuse external validity during estimation process which helps to explore how universal is the causal effect. The study brought out the fact that skill level of workers affects the wage-earning potential of workers significantly. However, different skill requirements to perform a range of tasks & operations, along with associated complexity, moderates the strength of causal linear relationship and the resultant slope indicating relationship between skill level of workers and their wage-earning potential varies significantly across occupational groups. Thus, conceptualization of task-content based approach of occupations determines wage-earning potential of workers and hereby is a promising boulevard for future research.
This paper analyses the relationship between human capital and productivity using sector-level data for five countries. We use a measure of human capital that follows an index number approach and allows for country-specific educational settings and differences in mean wage levels across skill groups. The analysis compares the impact of human capital on relative labour productivity using different estimation methods and different specifications of the production function. Our results show that human capital has a strong and significant role in determining relative productivity levels with a varying degree of intensity in different countries and sectors. Unlike many previous contributions we also find that human capital has a positive effect on productivity growth when we allow for the catching-up effect of less productive countries relative to the leader country at sector level.
Using cross-country estimates of physical and human capital stocks, we run the growth accounting regressions implied by a Cobb-Douglas aggregate production function. Our results indicate that human capital enters insignificantly in explaining per capita growth rates. We next specify an alternative model in which the growth rate of total factor productivity depends on a nation's human capital stock level. Tests of this specification do indicate a positive role for human capital.
Productivity growth in virtually all west European countries exceeded that of the United States throughout the period 1950 to 1995. Since then American productivity performance has strengthened and that of the EU has weakened. The most important reason is contrasting experiences with Information and Communications Technology (ICT). The article argues that this may reflect a failure of European countries to update their ‘social capability’ to the requirements of a new technological epoch and points in particular to weaknesses in human capital formation and to excessive employment protection as obstacles to rapid realization of the productivity potential of ICT.
Many writers have claimed that research and development (R&D) has two faces. In addition to the conventional role of stimulating innovation, R&D enhances technology transfer (absorptive capacity). We explore this idea empirically using a panel of industries across twelve OECD countries. We find R&D to be statistically and economically important in both technological catch-up and innovation. Human capital also plays an major role in productivity growth, but we only find a small effect of trade. In failing to take account of R&D-based absorptive capacity, existing U.S.-based studies may underestimate the return to R&D. Copyright (c) 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.
This paper examines the effect of information technology (IT) on the relative demand for educated workers in U.S. industries from 1960 to 1996. After decomposing this effect into IT use and adoption, I find that the use of IT is complementary with educated workers, and that educated workers have a comparative advantage in the adoption of IT. In total, IT use and adoption effects account for almost 40% of the acceleration in demand for educated workers since 1970. Moreover, the adoption of IT explains about one-third of the total IT effect on the acceleration in skill upgrading in the 1970s. Copyright (c) 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.
We apply an understanding of what computers do to study how computerization alters job skill demands. We argue that computer capital (1) substitutes for workers in performing cognitive and manual tasks that can be accomplished by following explicit rules; and (2) complements workers in performing nonroutine problem-solving and complex communications tasks. Provided these tasks are imperfect substitutes, our model implies measurable changes in the composition of job tasks, which we explore using representative data on task input for 1960 to 1998. We find that within industries, occupations and education groups, computerization is associated with reduced labor input of routine manual and routine cognitive tasks and increased labor input of nonroutine cognitive tasks. Translating task shifts into education demand, the model can explain sixty percent of the estimated relative demand shift favoring college labor during 1970 to 1998. Task changes within nominally identical occupations account for almost half of this impact.
We develop a model of growth and technology diffusion which we fit to aggregate data from OECD countries. Our model implies that each country will eventually grow at the same rate, with its relative productivity determined by its ability to adopt new inventions. Hence productivity levels rather than growth rates better reflect a country's ability to innovate or to adopt new technology. We estimate the model to explain international patterns of productivity and patenting. We find that more than 50% of the growth in each country in our sample derives from innovation in the United States, Germany, and Japan.
The authors assume that firms invest in R&D not only to generate innovations, but also to learn from competitors and extraindustry knowledge sources (e.g., university and government labs). This argument suggests that the ease of learning within an industry will both affect R&D spending, and condition the influence of appropriability and technological opportunity conditions on R&D. For example, they show that, contrary to the traditional result, intraindustry spillovers may encourage equilibrium industry R&D investment. Regression results confirm that the impact of appropriability and technological opportunity conditions on R&D is influenced by the ease and character of learning. Copyright 1989 by Royal Economic Society.
This paper studies the theoretical and empirical implications of monetary policy making by committee under four different voting protocols. The protocols are a consensus model, where a supermajority is required for a policy change; an agenda-setting model, where the chairman controls the agenda; a dictator model, where the chairman has absolute power over the committee; and a simple majority model, where policy is determined by the median member. These protocols give preeminence to different aspects of the actual decision-making process and capture the observed heterogeneity in formal procedures across central banks. The models are estimated by maximum likelihood using interest rate decisions by the committees of five central banks, namely the Bank of Canada, the Bank of England, the European Central Bank, the Swedish Riksbank, and the U.S. Federal Reserve. For all central banks, results indicate that the consensus model fits actual policy decisions better than the alternative models. This suggests that despite institutional differences, committees share unwritten rules and informal procedures that deliver observationally equivalent policy decisions. (c) 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..
To understand the economic value of computers, one must broaden the traditional definition of both the technology and its effects. Case studies and firm-level econometric evidence suggest that: 1) organizational "investments" have a large influence on the value of IT investments; and 2) the benefits of IT investment are often intangible and disproportionately difficult to measure. Our analysis suggests that the link between IT and increased productivity emerged well before the recent surge in the aggregate productivity statistics and that the current macroeconomic productivity revival may in part reflect the contributions of intangible capital accumulated in the past. Erik Brynjolfsson is Associate Professor of Management, Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts and Co-director of the Center for eBusiness at MIT. Lorin M. Hitt is Assistant Professor of Operations and Information Management, Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania. Their e-mail addresses are <erikb@mit.edu> and <lhitt@wharton.upenn.edu> and their websites are <http://ebusiness.mit.edu/erik> and <http://grace.wharton.upenn.edu/~lhitt>, respectively. 2 Computers and Economic Growth How do computers contribute to business performance and economic growth? Even today, most people who are asked to identify the strengths of computers tend to think of computational tasks like rapidly multiplying large numbers. Computers have excelled at computation since the Mark I (1939), the first modern computer, and the ENIAC (1943), the first electronic computer without moving parts. During World War II, the U.S. government generously funded research into tools for calculating the trajectories of artillery shells. The result was the develo...
This paper uses a variety of recent sources of information to explore the labour market experiences of those who gained a degree in the 1980s and 1990s. Specifically, we address the issue of ‘overeducation’ — the view that the expansion of higher education in the 1990s created a situation in which increasing numbers of graduates were unable to access employment that required and valued graduate skills and knowledge. Two complementary approaches to this issue are adopted. We review available evidence on the graduate earnings premium and change in the UK occupational structure, and we conduct a detailed examination of the earnings and characteristics of jobs done by a large sample of 1995 graduates seven years after graduation.
We conclude that, while there may have been a decline from the high premium enjoyed by older graduates, for those who graduated in 1995 the average premium was holding up well, despite the expansion. Although we found differences between established graduate occupations and the newer areas of graduate employment, our evidence suggests that the development of new technical and managerial specialisms and occupational restructuring within organisations has been commensurate with the availability of an increased supply of highly qualified people.
This paper provides a rigorous analysis of the sources of changes in the U.S. skill premium between 1965-1999. Over this period, the relative wages of skilled workers have increased signif- icantly despite the substantial growth in their relative supply. I present new empirical estimates of the impact of technology and various measures of capital in the demand for skilled labor, based on a translog production model with four (and Þve) factors and separate trends for the factor biases of technical change. I Þnd that capital-skill complementarity accounts for at most 40 percent of the rise in the skill premium, with factor nonneutral technological change and other unobservable factors accounting for most of the variation in the skill premium. Furthermore, the contribution of capital is decreasing over time while the technology effect is accelerating. I show that only a small fraction of equipment capital, information technology, is complementary to skilled labor. In fact, equipment excluding IT has narrowed the skilled wage gap. I also Þnd that skill-biased technological change takes the form of rising skilled labor efficiency and declining unskilled labor efficiency, with the latter becoming increasingly important over time. In addition, IT-using innovations are found to drive the skill premium down, which suggests that the total effect of IT is smaller than the one predicted by changing quantities alone. Finally, I Þnd that the data reject less ßexible speciÞcations in favor of the translog model.
В статье производится анализ агрегированной производственной функции, вводится аппарат, позволяющий различать движение вдоль такой функции от ее сдвигов. На основании сделанных в статье предположений делаются выводы о характере технического прогресса и технологических изменений. Существенное внимание уделяется вариантам применения концепции агрегированной производственной функции.
This article explores the impact of mass higher education on high skills utilisation in the retailing, computer services and transport and communications industries. In all three industries graduates have been taken on in increasing numbers in recent years, partly in order to meet growing demands for analytical ability, generic skills and technical knowledge, and partly as a result of larger numbers of graduates applying for relatively low-paid, undemanding jobs. There is evidence of graduate substitution for non-graduates having contributed to a job upgrading process in two different ways during the last decade: (1) through a one-off permanent upgrading of clerical and administrative jobs in departments such as customer services and marketing; and (2) through temporary job upgrading as individual graduates in lower level jobs take on additional tasks and responsibilities in the hope of securing internal promotion or moving to better jobs with other employers. However, the scope for further job upgrading of a permanent kind appears to be limited. In general, the burden of adjustment to the increased supply of graduates falls to a greater extent on individual graduates than it does on employers. This contributes to a widening divergence of salaries and career prospects across the graduate labour market.
Over several panels of countries, this article studies the determinants of per employee productivity first in growth rate, using the generalised method of moments and focusing on the role of ICT, then in level, using more structural determinants.
In a detailed comparison of matched samples of electronics establishments in Britain and France, this paper finds that the two samples of establishments were operating in distinctively different national labour markets for engineers and scientists, reflecting structural differences in national higher education systems and a far higher level of individual mobility between enterprises in Britain than is found in France. These differences were found to have very little effect on quantitative measures of establishments’ external research interactions which tended to reflect other national-institutional differences such as continued government support for public laboratories in France of a kind which have now been largely privatised in Britain. However, qualitative evidence pointed to a faster rate of development of new external knowledge sourcing and relationship building in Britain which was partly stimulated by the greater mobility of individual engineers and scientists between enterprises and other organisations bringing new personal networks of external contacts with them. These tendencies contrasted with a marked stability in external research linkages in France. The paper suggests that the greater openness of British R&D networks to new ideas and knowledge may be particularly advantageous in fast-changing high-tech industries such as electronics.
This paper investigates US multinational enterprises (MNEs) as a channel of international technology diffusion in 40 countries from 1966 to 1994. We use data on technology transfer to distinguish between the technology diffusion effect and other productivity-enhancing effects of MNEs. We find that the technology transfer provided by US MNEs contributes to the productivity growth in DCs but not in LDCs. We show that a country needs to reach a minimum human capital threshold level in order to benefit from the technology transfer of US MNEs; however, most LDCs do not meet this threshold requirement.
Current concern with the impact of new technologies on the wage structure motivates this study. We offer evidence that technology-skill and capital-skill (relative) complementarities existed in manufacturing early in this century and were related to the adoption of electric motors and particular production methods. Industries, from 1909 to 1929, with more capital per worker and a greater proportion of motive energy coming from purchased electricity employed relatively more educated blue-collar workers in 1940 and paid their production workers substantially more. We also find a strong positive association between changes in capital intensity and the nonproduction worker wage bill from 1909-1919 implying capital-skill complementarity as large as in recent years. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
This paper provides a unique cross-country comparative perspective on the impact of information and communication technology on the demand for skilled labour. It employs panel data for the US, the UK and France, comprising several skill categories for each country for the 1980s and 1990s. The paper considers the issue of whether skill bias is transitory or permanent both by considering changes through time and by dividing the highly skilled into IT specific and other occupations. The results indicate that the impact of technology on the demand for skilled labour is slowing down, at least in the US, supporting a transitory interpretation.
This paper summarizes and tries to reconcile evidence from the microeconometric and empirical macro growth literatures on the effect of schooling on income and GDP growth. Much microeconometric evidence suggests that education is an important causal determinant of income for individuals within countries. At a national level, however, recent studies have found that increases in educational attainment are unrelated to economic growth. This discrepancy appears to be a result of the high rate of measurement error in first-differenced cross-country education data. After accounting for measurement error, the effect of changes in educational attainment on income growth in cross-country data is at least as great as microeconometric estimates of the rate of return to years of schooling. Another finding of the macro growth literature--that economic growth depends positively on the initial stock of human capital--is not robust when the assumption of a constant-coefficient model is relaxed.
Recent research shows that productivity differences are more important than differences in accumulation rates in explaining per capita income differences across countries. So far static differences in productivity have been mainly computed and analyzed in large samples of countries. This paper extends the research by focusing on productivity dynamics . It uses the panel approach to compute productivity indices for a large sample of countries for two time periods, namely an initial period of 1960-75 and a subsequent period of 1975-90. This allows computation of ordinal and cardinal changes in productivity between the two periods. The results show considerable variation in productivity dynamics across countries. The task ahead is to find out what accounts for the observed dynamics. Copyright 2003 by the International Association for Research in Income and Wealth.
We offer an extensive summary and a critical discussion of the empirical literature on the impact of human capital on macro‐economic performance, with a particular focus on UK policy. We also highlight methodological issues and make recommendations for future research priorities.
Taking the studies as a whole, the evidence that human capital increases productivity is compelling, though still largely divided on whether the stock of education affects the long‐run level or growth rate of GDP. A one‐year increase in average education is found to raise the level of output per capita by between three and six percent according to augmented neo‐classical specifications, while leading to an over one percentage point faster growth according to estimates from the new‐growth theories. Still, over the short‐run planning horizon (four years) the empirical estimates of the change in GDP are of similar orders of magnitude in the two approaches. The impact of increases at different levels of education appear to depend on the level of a country's development, with tertiary education being the most important for growth in OECD countries. Education is found to yield additional indirect benefits to growth. More preliminary evidence seems to indicate that type, quality and efficiency of education matter for growth too.
Many writers have claimed that R&D has two 'faces'. In addition to the conventional role of stimulating innovation, R&D enhances technology transfer by improving the ability of firms to learn about advances in the leading edge ('absorptive capacity'). In this paper we document that there has been convergence of TFP within a panel of industries across thirteen OECD countries since 1970. Furthermore, we find evidence that both R&D and human capital appear statistically and economically important in this catch up process as well as stimulating innovation directly. Trade, by contrast, plays a more modest role in productivity growth.
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